question
Microeconomics
answer
the study of how households and firms make decisions and how they interact in markets
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macroeconomics
answer
the study of the economy as a whole. The goals is to explian the economic changes that affect many households, firms, and markets simultaneously
question
What two things does gross domestic product measure (at the same time)?
answer
1) the total income of everyone in the economy
2) the total expenditure on the economy's output of goods and serices
2) the total expenditure on the economy's output of goods and serices
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Why is the statement "income must equal expenditure" true?
answer
Every transaction has two parties: a buyer and a seller. All expenditures in the economy ends up as someone's income, so GDP is the same regarless of how we compute it.
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Which contributes more to GDP---the production of a yacht or the production of a row boat? Why?
answer
A yacht because GDP takes into account the market value (what people are willing to pay for something) and a yacht is more expensive, thus it contributes more to GDP
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What types of products/things does GDP not include because measuring them is so difficult?
answer
items produced and sold illicitly such as illegal drugs; most items produced and consumed at home (never entered the marketplace like home-grown vegetables.
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What are the four components of GDP?
answer
consumption, investment, government purchases and net exports
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What equation is used to calculate GDP?
answer
Y = C+I+G+NX
(Y is GDP, C is consumption, I is investment, G is govmt purchases, NX is net exports)
(Y is GDP, C is consumption, I is investment, G is govmt purchases, NX is net exports)
question
If your mother pays to get her hair cut, what component of GDP does this fall under? (consumption, investment, government purchases or net exports)
answer
consumption
question
If our country exports cars and profits from this but then we also spend on imported cars, the difference is called what? (hint: it is a component of expenditure in GDP)
answer
net exports
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An office purchases a high capacity gasket machine to help increase their ability to produce more gaskets in a shorter period of time. Because it is being used to produce other goods it is considered what component of expenditure in GDP?
answer
investment
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An unemployment benefit paid by the government is called what?
answer
transfer payment because they are not made in exchange for a currently produced good or service.
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When a soldier receives his paycheck from the government, what component of expenditure in GDP is this?
answer
government purchases
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Which component of expenditure is the largest?
answer
consumption
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What is the goal of computing GDP?
answer
to guage how well the overall economy is performing.
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Which is a better measures the economy's ability to satisfy peple's needs and desires, real GDP or nominal GDP?
answer
real GDP which does not use current prices but rather constant base-year prices (reflects only the quantities produced)
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What is used to calculate only th eprices of goods and services?
answer
GDP deflator
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Situation in which the economy's overall price level is rising.
answer
inflation
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How is GDP deflator calculated?
answer
GDP deflator = nominal GDP/real GDP x 100
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How is the inflation rate calculated between two years?
answer
Inflation rate in year 2 = GDP deflator in year 2 - GDP deflator in year 1/GDP deflator in year 1
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Has our real GDP grown or decreased over time?
answer
grown
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What do we call the periods of interruption when GDP declines?
answer
recessions
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What is the old rule of thumb for declaring a recession?
answer
Two consecutive quarters of falling real GDP
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What are some of the characteristics/results of a recession?
answer
lower incomes, rising unemployment, falling profits, increased bankruptcies
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What is an example of something that would raise GDP but would be undesirable?
answer
removing environmental restrictions on factories so they could produce what they wanted however they wanted with no concern for the environment. This would be unhealthy but produce more money for the GDP. Another example: people could start working everyday of the week but their quality of life would drop dramatically
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